Major averages bounced but yesterday on flat to lower volume though managed to close in the upper half of their respective trading ranges. The S&P 500 and Dow Indexes stalled at their 50-day moving averages, while the NASDAQ Composite stalled at its 20-day moving average. After Wednesday's selloff, one would have hoped for a stronger bounce. That said, QE is still in full force globally so it could once again create a shallow floor. Watch how leading stocks including those on our Focus List perform in the days ahead for key clues to market direction.
We noted this morning that most Focus List names were holding above their 10-dma and 20-dema lines despite the sharp sell-off on Wednesday. Some did in fact exhibit very positive action yesterday, per our notes below.
Focus List Review
Tech juggernauts AMZN, FB, and NFLX all bounced of key support levels, though on lower volume than the preceding down day. They may need a little more time to settle down in conjunction with the general market before attempting to resume their uptrends.
AAOI had a pocket pivot off its 10-day moving average and the top of its prior cup base. The original buy point was just above the 50-day moving average as we reported at that time. Currently it is somewhat extended as a logical stop would be 6% from Thursday's closing price.
BABA gapped down on its earnings report but managed to reversed sharply back to the upside after an initial gap-down open. The action was strong enough to qualify as a pocket pivot, with the stock closing near the top of its range. Those alert to Ugly Duckling set-ups might have noticed that BABA also staged an undercut & rally move today after undercutting its 114.62 and 114.80 lows of 4/26 and 5/5, respectively. When the general market stages an oversold bounce, the undercut & rally set-up is often your most potent weapon, and is a simple trade to execute. In BABA's case, once the stock pushed up through one or the other or both prior lows in the pattern, the position is taken using the lows, plus perhaps another 1-3% to allow for downside porosity, depending on one's personal risk-tolerance, as your stop.
BZUN has swung about in a nearly 20% wide range over the past three days, but is putting up a fight at its 10-dma in an effort to head higher in volatile fashion. Lower-risk entries would be found closer to the 20 price level.
COHR pulled back to its 10-day moving average today where it presented a lower-risk entry opportunity that could have been acted upon.
JD found volume support at its 10-day moving average. This also presented a lower-risk entry opportunity for those alert to it.
NOW found volume support at its 10-dma yesterday, which could be viewed as a lower-risk entry point.
SNAP held up on the day and is forming a short three-day bull flag along the 20 price level as volume declines. This looks like a Wyckoffian Retest, which could resolve to the upside IF the general market is able to find its feet.
Useful market feedback is often provided by a sharp sell-off as it gives us a chance to see which stocks on the Focus List may be the strongest buy candidates should the market find its feet in the coming days. Otherwise, those holding long positions should simply adhere to their pre-determined selling guides. There is no need to complicate matters further until stops are hit, if one is willing to sit through short-term volatility that does indeed prove to be short-term.